MANAGEMENT ACCOUNTING - Solutions Manual

CHAPTER 2 MANAGEMENT ACCOUNTING AND THE BUSINESS ENVIRONMENT

I. Questions 1. Managerial accounting information often brings to the attention of managers important issues that need their managerial experience and skills. In many cases, managerial-accounting information will not answer the question or solve the problem, but rather make management aware that the issue or problem exists. In this sense, managerial accounting sometimes is said to serve an attention-directing role. 2. Non-value-added costs are the costs of activities that can be eliminated with no deterioration of product quality, performance, or perceived value. 3. Managers rely on many information systems in addition to managerialaccounting information. Examples of other information systems include economic analysis and forecasting, marketing research, legal research and analysis, and technical information provided by engineers and production specialists. 4. Becoming the low-cost producer in an industry requires a clear understanding by management of the costs incurred in its production process. Reports and analysis of these costs are a primary function of managerial accounting. 5. Some activities in the value chain of a manufacturer of cotton shirts are as follows: (a) Growing and harvesting cotton (b) Transporting raw materials (c) Designing shirts (d) Weaving cotton material (e) Manufacturing shirts (f) Transporting shirts to retailers (g) Advertising cotton shirts Some activities in the value chain of an airline are as follows: (a) Making reservations and ticketing
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(b) (c) (d) (e) (f) (g) (h)

Designing the route network Scheduling Purchasing aircraft Maintaining aircraft Running airport operations, including handling baggage Serving food and beverages in flight Flying passengers and cargo

6. Strategic cost management is the process of understanding and managing, to the organizations advantage, the cost relationships among the activities in an organizations value chain. 7. If customers who provide a company with the most profits are attracted, satisfied, and retained, profits will increase as a result. 8. A value chain is a sequence of business functions whose objective is to provide a product to a customer or provide an intermediate good or service in a larger value chain. These business functions include R&D, design, production, marketing, distribution, and customer service. An organization can become more effective by focusing on whether each link in the chain adds value from the customers perspective and furthers the organizations objectives. 9. Cost: Quality: Time: Organizations are under continuous pressure to reduce the cost of the products or services they sell to their customers. Customers are expecting higher levels of quality and are less tolerant of low quality than in the past.

Time has many components: the time taken to develop and bring new products to market; the speed at which an organization responds to customer requests; and the reliability with which promised delivery dates are met. Organizations are under pressure to complete activities faster and to meet promised delivery dates more reliably than in the past in order to increase customer satisfaction. Innovation: There is now heightened recognition that a continuing flow of innovative products or services is a prerequisite for the ongoing success of most organizations. 10. Managers make planning decisions and control decisions. Planning decisions include deciding on organization goals, predicting results under
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various alternative ways of achieving those goals, and then deciding how to attain the desired goals. Control decisions include taking actions to implement the planning decisions and deciding on performance evaluation and feedback that will help future decision making. 11. Four themes for managers to attain success are customer focus, valuechain and supply-chain analysis, key success factors, and continuous improvement and benchmarking. 12. Companies add value through R&D; design of products, services, or processes; production; marketing; distribution; and customer service. Managers in all business functions of the value chain are customers of management accounting information. 13. This phrase means that people will direct their attention to work primarily on those tasks that management monitors and measures. Employees may not pay as much attention (or no attention) to tasks that are not measured. Often management will reward people based on how well they perform relative to a specific measure. As an example, in a manufacturing organization, if people are measured and rewarded based on the number of outputs per hour, regardless of quality, employees will focus their attention on producing as many units of output as possible. A negative consequence is that the quality of output may suffer. 14. Some of these new measures are quality, speed to market, cycle time, flexibility, complexity and productivity. 15. Customer satisfaction is often thought to be a qualitative measure of performance as one cannot directly observe satisfaction. However, using attitude surveys and psychological measurements, customer satisfaction can be measured in quantitative terms. For instance, people who design surveys often employ attitude scales that ask questions in which customers respond on a 1 to 5 scale. These values can be summed and averaged to determine satisfaction scores. 16. Stakeholders Employees Contribution Effort, skills, information Requirements Rewards, interesting jobs, economic security, proper treatment Financial rewards

Partners

Goods, services,
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information Owners Community Capital Allows the organization to operate and does not oppose its operation

commensurate with the risk taken Financial rewards Conformance to laws, good corporate citizenship and, perhaps, leadership

17. Competitive benchmarking is an organizations search for, and implementation of, the best way to do something as practiced in other organizations. Continuous improvement is the relentless search to (1) document, understand, and improve the activities that the organization undertakes to meet its customers requirement, (2) eliminate processing activities that do not add product features that customers value, and (3) improve the performance of activities that increase customer value or satisfaction. 18. A value-added activity is an activity that, if eliminated, would reduce the products service to the customer in the long run. An activity that cannot be classified as value-added is a nonvalue-added activity: a. b. c. d. e. f. g. h. i. j. Value-added Nonvalue-added Nonvalue-added Value-added Nonvalue-added Nonvalue-added Value-added Value-added Nonvalue-added Value-added

19. Just-in-time means making a good or service only when the customer, internal or external, requires it. Just-in-time requires a product layout with a continuous flow (no delays) once production starts. It means that setup costs must be reduced substantially to eliminate the need to produce in batches, and it means that processing systems must be reliable. Justin-time production is based on the elimination of all nonvalue-added
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activities to reduce cost and time. It is an approach to improvement that is continuous and involves employee empowerment and involvement. 20. Managerial accounting is concerned with providing information to managers for use within the organization. Financial accounting is concerned with providing information to stockholders, creditors, and others outside of the organization. 21. A strategy is a game plan that enables a company to attract customers by distinguishing itself from competitors. The focal point of a companys strategy should be its target customers. II. Multiple Choice Questions 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. B A D A D A C B D B 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. A B C D A A B C B A 21. B 22. C 23. C

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